The Hidden Peril of Mortgage Modification

When you’re strapped for cash to pay off monthly mortgage payments, a loan modification usually sounds like a great idea. However, especially if you are currently at risk of foreclosure, applying for a mortgage modification might expose you to a hidden peril that could put your ability to keep the home in jeopardy.

Called dual tracking, the problem occurs when your lender is in the process of pursuing a foreclosure case against you while your mortgage modification is pending. This caused a lot of problems following the mortgage crisis when homeowners facing foreclosure were offered loan modifications—only to have their homes taken away from them when the foreclosure process finished first.

Fortunately for homeowners, the Consumer Financial Protection Bureau issued new mortgage servicing rules that came into effect on January 10, 2014, effectively banning dual tracking.

The issue, however, that makes dual tracking an ongoing problem is that bankers, lenders, and mortgage servicers currently advise borrowers not to contact an attorney before applying for a mortgage modification. While the banks’ explanation that this allows borrowers to save money is justified, this can put borrowers at risk of losing their homes if their mortgage servicer violates the law by dual tracking.